Thanks, @momir_iosg, for the proposal! This is very much aligned with current discussions and Gauntlet’s perspective. A few thoughts:
- Spot liquidity as a Growth Catalyst: Assets need sufficient liquidity, targeting depth and slippage, to support liquidations, leverage, and oracles. Raising this capacity for blue chips and other high-volume assets is important. Arbitrum hasn’t directly targeted this in the past, but it’s certainly a realization within the DAO.
- Focus on Assets vs Protocols: The key here is defining what blue-chip assets entail. I’ll touch on ETH below, but a key focus highlighted by DeFi protocols on Arbitrum (beyond ETH/Stables) has been RWAs and wrapped BTC (including restaked BTC). Related to this point are theoretical security and retention benefits of native-minting these assets to Arbitrum rather than bridging (where possible).
- Pivoting from Protocol Grants: This has been discussed for a long time, and it’s safe to say the DAO-aligns. The true reckoning is what tactical approach makes sense for which use case. For users, project-agnostic validation of user actions makes sense, allowing users to choose their preferred trading venue. For strategies (i.e., bootstrapping levered ETH or RWA strategies), it’s important to consider integrations and align liquidity with liquidators and aggregators. Liquidity/Assets is slightly more difficult to be agnostic, but we believe these are generally solvable problems, especially with targeted KPIs and performance goals.
- Rapid Bridging for High Mindshare Assets: This is an interesting point, and Arbitrum has missed speculative volume that has surged on other ecosystems. We’re curious about how this would be conducted operationally and the decision process regarding which assets to incentivize. The ROI must be clearly defined to ensure the strategy results in retention and the DAO does not overspend chasing transient volatility/volume.
Beyond spot liquidity, a potential phasing the DAO has discussed to support more sophisticated strategies is:
- Set depth and slippage targets for strategic asset liquidity on Arbitrum DEXes.
- Whitelist and incentivize lending market liquidity and utilization for strategic assets.
- Subsidize trading volume for strategic assets on Arbitrum protocols across DEX and Perpetual marketplaces.
- Subsidize Arbitrum-based yield and leverage-based strategies and products for strategic assets.
Exploring Beyond Stables and WETH
One takeaway from LTIPP was that 75% of ETH bridged to Arbitrum during the program returned to Mainnet after incentives ended. Presumably, this capital fled partly due to staking and ETH restaking farming. Notably, stablecoins and LRT/LST tokens had stronger retention on Arbitrum following LTIPP. Two insights from this are 1) DeFi yield (without incentives) may be insufficient to retain native ETH on Arbitrum, and 2) to maintain Arbitrum’s DeFi dominance, it must create a sufficient liquidity environment for LRT/LST tokens.
The LRT/LST ecosystem is approaching a critical growth stage, and chain abstraction solutions like Everclear are gaining traction, pointing toward a world where users will stake and re-stake ETH directly from L2s themselves. Some L2s, such as Blast, have gone so far as to stake assets in their native bridge directly.
A few trends we’ve heard discussed also align with this goal:
- Chain Abstraction: Setting up a thriving DeFi ecosystem for blue-chip assets means the DAO must focus on robust DEX liquidity, healthy lend/borrow markets, yield-derivative products, levered ETH strategies, and perpetual strategies ensures that as chain abstraction accelerates, Arbitrum is the most attract venue to earn yield and trade onchain.
- Growth Management Committee (GMC): The GMC proposes an RFP process seeking protocol partnerships by deploying the DAO’s ETH, which must target the use of ETH itself or ETH-pegged assets. This program has the potential to attract partners willing to match DAO incentives through its targeted LST/LRT incentive programs, help seed a baseline of POL to provide sophisticated LP depth that supports aforementioned DeFi vaults and strategies, and create a competitive environment for LST/LRT dominance on Arbitrum.
- Arbitrum-based Oracles: The Opportunity for ETH alignment transcends beyond Arbitrum goals, allowing for additional ecosystem-wide benefits only Arbitrum can provide. At DevCon, perps teams pointed out that ETH/wstETH and BTC onchain oracles can rely on slower mainnet pools. With sufficient depth on Arbitrum, onchain oracles might benefit from Arbitrum’s settlement, providing data feeds fast enough to enable new use cases.
Conclusion
Whether these points are integrated into the above proposal or repurposed into separate and complementary proposals, we look forward to discussing with IOSG and welcoming Momir and Henry into the ecosystem.
There are many routes to more capital-efficient and targeted incentive distribution, with a number of service providers, protocols, tools, and solutions that, with varying degrees of specialization and competency, could likely do the job. That said, extra diligence should be given toward the tactics, capital efficiency, and KPIs the program intends to achieve.